Balance of Payment (BoP)

Ankita Pandey

Definition
The Balance Of Payments of a country is a systematic record of all economic transactions between the residents of a country and the rest of the world. It presents a classified record of all receipts on account of goods exported, services rendered and capital received by residents and payments made by them on account of goods imported and services received from the capital transferred to non-residents or foreigners. Reserve Bank of India (RBI)

Importance of BoP

The BoP is an important indicator of pressure on a countrys foreign exchange rate . The BOP helps to forecast a countrys market potential, especially in the short run. Changes in a countrys BOP may signal the imposition or removal of controls over payment of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.

Contents of BoP
Current

account Capital account Financial account Net errors and omissions account Reserves and related items: official reserve account

Current account

Net export/import of goods (trade balance) Net export/import of services Net income (investment income from direct and portfolio investment plus employee compensation) Net transfers (sums sent home by migrants and permanent workers aboard, gifts, grants and pensions)

Capital account

Capital transfers related to the purchase and sale of fixed assets such as real estate

Financial account
Net

foreign direct investment Net portfolio investment Other financial items

Net errors and omissions account

Missing

data such as illegal transfers

Reserves and related items: official reserve account

Changes in official monetary reserves including gold, foreign exchange, and IMF position.

Components of the trade

Imports -bulk imports: petroleum, crude & products, bulk consumption goods, other bulk items. -non bulk imports: capital goods, mainly export related items Exports -agriculture and allied products, ores and minerals, manufactured goods, mineral fuels.

Import proportion (in %)

45 40 35 30 25 20 15 10 5 0 1970-71 1980-81 1990-91 2004-05 petroleum, crude & products bulk consumption goods other bulk items capital goods mainly export related items

Export proportion (%)

80 70 60 50 40 30 20 10 0 1970-71 1980-81 2004-05 others agriculture & allied products ores & minerals manufactured goods minerals fuels

Invisibles(%)
particulars A. services -travels -transportation -software services -miscellaneous B. Transfers C. Income 2003-04 36.4 5.1 3.2 44.4 (16.3) 76.8 (16.2) 2004-05 45.4 3.1 .8 53 (11.6) 66.8 (12.2)

BoP in five year plans

300000 200000 100000 0 -100000 -200000 -300000 1st 2nd 3rd 4th 5th 6th 7th 8th 9th plan plan plan plan plan plan plan plan plan -400000 trade deficit net invisibles BoP

In
150000 100000 50000 0 -50000 -100000 -150000 -200000

th 10

five year plan

trade deficit net invisibles BoP

2002-03

2003-04

2004-05

Countries with which India trade

OECD (1)European union -France -Belgium -Germany -UK -Italy (2) North America -Canada -USA (3) Other OECD -Australia -Japan -Switzerland
-

OPEC Iran Indonesia Saudi Arabia UAE Eastern Europe Russia Developing countries China Hong-Kong South Korea Malaysia Sigapore SAARC Africa others

Direction of indias exports

developing countries euopean union eastern europe OPEC

other OECD north america

Direction of indias imports

developing countries european union eastern europe

OPEC north america other OECD

Thank you
Any questions????????????